201504 CM April

TRADE CREDIT INSURANCE PART ONE
CONTINUED
The trend towards pre-pack
administrations is also a concern and
again making the headlines. The failure of
USC, the fashion brand owned by Sports
Direct billionaire Mike Ashley, is a recent
case in point. Republic, another arm of
Ashley’s empire, bought the assets of
USC in a pre-pack, leaving suppliers out
of pocket and some 90 staff redundant.
It also left the media and credit insurers
scratching their heads: “When a Group
opts to pre-pack a subsidiary, it changes
the way we look at that Group,” Gerard
says. “Indeed we may no longer even
look at it as one Group for insurance
purposes, but rather more closely
examine the individual elements.”
Frédéric Bourgeois, Managing Director
of Coface in the UK and Ireland, agrees.
He describes pre-packs as ‘business
as usual’: “For some categories of risk,”
he says, “we may now take a different
approach with regards to a company’s
links to related parties. We would certainly
look more closely at groups with Venture
Capital (VC) or Private Equity (PE)
ownership, looking at their reputation
and track record in supporting group
businesses.”
Frédéric says that maintaining a
balanced portfolio is essential: “We
do not write cover for the sake of a
premium,” he explains. “We need balance
in our portfolio so that our support to
clients is sustainable, and so that there is
no risk of an extraordinary claim that puts
us in an awkward position and leads to a
knee-jerk reaction that is detrimental to
clients. You take risks, of course, but you
do not ‘bet the farm’.”
Marc Henstridge, Director of Risk
Services for Atradius UK and Ireland, is
another who agrees that recent failures,
and the abuse of pre-packs, is changing
the face of credit insurance underwriting:
“Whereas pre-packs are a necessary part
of the insolvency process, they need to
be transparent,” he says. “In the case
of USC, it appears a pre-pack was used
to allow a major Group to rid itself of
unprofitable stores, change its business
model and restructure the business and
that is not what a pre-pack is intended
for.
“This was a Group that as an insurer
we treated as a Group, a Group that we
believed would stand or fall as one. The
administration was not something that
we anticipated and the suddenness of
the actions by the directors does leave a
number of unanswered questions.”
Such examples, Marc concedes, are
rare, but tend to hit the headlines. He
has a strong view also on the failures
at City Link and Phones4U. The former,
he says, was a broken model, and its
But the collapse of Phones4U came like
a bolt out of the blue: “The company still
had significant levels of cash on the balance
sheet when it failed,” he says. “Yes it is true that
contracts had not been renewed, but there was
a long run-off period and therefore plenty of
opportunity for the directors to either re-negotiate
those contracts or devise a new strategy ...
– MARC HENSTRIDGE, DIRECTOR OF RISK
SERVICES FOR ATRADIUS UK AND IRELAND
22 April 2015 www.cicm.com
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